By: Scott Redler
I had four MAJOR stock market calls in 2009 way before anyone else on the street.
In March, I told Mark Haines that it’s time for investors to get a plan to get long the market—at the time, the Dow was at 7,000. This was a great time to formulate a plan. In May, I told Bob Pisani that the Dow could get to 10,300-10,500—people thought I was CRAZY—we were at 8,400 at the time. The stock market not only met my objective, it very well might exceed it. Last December, I told Erin and Mark that GOLD will be the focus of 2009—I said to get long gold in the $875 price area and to add above $920. I told Karen Tso and Martin Soong in September that gold was ready to EXPLODE through $980 and I said natural gas would be a triple (natural gas was at $2.70 and has since doubled…the triple remains in sight). In October, I told Amanda Drury that gold will get to 1,200-1,300 before year-end. On December 2nd, when gold was at $1,210, I then told Amanda Drury that we sold ALL our gold—with the intention of reentering the trade in the future—as price was parabolic.
2009 Economic Summary:
Positives:
U.S. firms did a great job cutting costs and unfortunately cutting jobs—They streamlined operations as much as possible in order to survive. Finally we saw some top-line growth last quarter—that helped propel the stock market higher. Prior earnings gains this year came solely from cost-cutting measures. This past quarter showed as that revenues are once again starting to grow (albeit rather slowly). This bodes well for the economy into the next year. The consumer continued to spend—but very efficiently. They are looking for deals, which is a good thing. The recent strength in retail is reflective of this. Should the dollar continue to bounce and oil continue to pull in, American consumers will have yet more money to deploy in the retail space.
Negatives:
High and persistent unemployment. The housing market still has lots of foreclosures coming to term. Banks still are not lending–although this is as much a demand problem as a supply problem. Americans simply have too much debt. Not enough people are credit worthy and until private sector balance sheets improve, that will not change. Big government and socialist policies are beginning to cause unrest in the American public.
2010 Market Predictions:
When you combine the fact that the government remains committed to propping up the economy with stimulus and the Fed determined to maintain its aggressive monetary policy, we believe that there will be upside opportunities into the New Year. As traders we need to follow anticipate potential moves and follow price action. With gold, we saw a measured move developing with an inverted head and shoulders–when our target was hit, we sold. It is important to implement a systematic approach and to have some target zones in mind.
I think the S&P can reach 1,230-1,250, the Dow can reach 11,800-12,200 and the NASDAQ can see 2,600-2,700. If we break this present range to the upside (it looks like that will happen today), we have little resistance until the 1,200 area. These are all massive resistance levels on the indices, as those areas had provided support leading up to the September 2008 meltdown and as we know, past support becomes future resistance (and past resistance becomes support). These price levels remain fresh in the minds of traders on multiple time frames. STOCK SELECTION WILL BE KEY—we will not see a year where everything moves in unison. Timing the market and sectors throughout the year will be very important. As we have consolidated in this extended range there has been movement. Sectors are taking turns breaking out and pulling in. Whereas last year the market largely traded in unison, this coming year will be different. Monitoring sector rotation will be key to OUTPERFORMING the S&P next year. We will try our best to focus on only those sectors in play at any given point in time. Shuffling through the various sectors to find the actual moves will save a lot of time, money and opportunity cost. Tech will continue to lead the way. We saw tech hold up relatively well into the March bottom and since then these stocks have outperformed the broader markets. With the semiconductors breaking out this week, tech has plenty of room to soar even higher. These companies came out of the tech bubble with clean balance sheets and little long-term debt. They are largely in great shape to prosper despite the tough macro economic environment. If there’s one thing for sure, that is that American innovation will continue to develop the newest and brightest ideas and technologies. Commodities will not be as strong as the broader markets, but there will be money to be made. We are buying back into GOLD in the $1,040-1,080 area for a move to the $1,300-1,500 level next year. We need to watch unemployment to see if it has peaked. We do think unemployment will reach 8.5-9% next year, but it might hit 10.5-10.7% first. The rate of change (the speed with which unemployment is increasing) has slowed and that is the first step to a turn-around. We will see small year-over-year earnings growth—we do not see a roaring recovery. The housing market still has problems—mortgage resets continue to cause MAJOR concerns. Government policy remains by far, my biggest concern. The direction we are taking—away from free-market capitalism, away from private business—with a greater emphasis on government solving all problems is not good. Presidential approval ratings domestically and internationally are starting to reflect this concern.
Micro S&P Targets into Year End
Into the New Year, we see that should the S&P close above 1,120, the door is wide open for a move up to 1,127 by year end. From there, the market has room to push up to the 1,135-1,140 area rather quickly, although that zone should put a cap on any extended rally. On the downside, any pullback should find support in the 1,110 and then the 1,098-1,100 areas.
Enjoy the Holiday Season and have a Happy New Year!
